Fritz W. Scharpf

Monetary Union, Fiscal Crisis and the Preemption of Democracy

Abstract

The European Monetary Union (EMU) has removed crucial instruments of macroeconomic
management from the control of democratically accountable governments.
Worse still, the EMU has systemically caused destabilizing macroeconomic imbalances
that member states found difficult or impossible to counteract with their remaining
policy instruments. And even though the international financial crisis had its origins
beyond Europe, the EMU has greatly increased the vulnerability of some member states
to its repercussions. Its effects have undermined the economic and fiscal viability of
some EMU member states and have frustrated political demands and expectations to
an extent that may yet transform the economic crisis into a crisis of democratic legitimacy.
Moreover, present efforts by EMU governments to "rescue the euro" will do little
to correct the economic imbalances and vulnerabilities, but are likely to deepen economic
problems and political alienation in both the rescued and the rescuing polities.

Contents

4 From 1999 to 2007: Monetarism in a non-optimal currency area
Germany: The sick man of Europe rescued by union wage restraint
The rise and increasing vulnerability of GIPS economies
Summary: The eurozone on the eve of the crisis

5 From 2008 to 2010: A sequence of three crises

6 Beyond the rescue operations: Options for a viable EMU?
The rescue-cum-retrenchment program
Political implications
From rescue operations to EMU reform
The worst of three worlds
Is there a hidden agenda of EMU reforms?